Comprehensive Annual Financial Report 12/31/1995

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CITY OF LINO LAKES, MINNESOTA NOTES TO FINANCIAL STATEMENTS December 31, 1995 The modified accrual basis of accounting is followed by the City for its Governmental Funds and Fiduciary Funds. Under this method of accounting, revenues are recognized when they become susceptible to accrual - that is, when they become both measurable and available to finance expenditures of the fiscal period. "Measurable" means the amount of the transaction can be determined and "available" means collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. Major revenue sources susceptible to accrual include property taxes (excluding delinquent taxes received over 60 days after year end), special assessments, intergovernmental revenues, charges for services and interest on investments. Major revenue sources not susceptible to accrual include licenses and permits, fees, and miscellaneous revenues. Such revenues are recorded as revenue when received because they are not measurable until collected. Expenditures are generally recognized in the accounting period when the fund liability is incurred, except for interest on general long -term debt which is recognized when due. The accrual basis of accounting is followed for the Proprietary Funds. Under this method of accounting, revenues are recognized during the accounting period in which they are earned and become measurable and expenses are recognized in the accounting period in which they are incurred if measurable. Governmental Accounting Standards Board (GASB) Statement #20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities that Use Proprietary Funds, provides proprietary activities with a choice of authoritative guidance issued after November 30, 1989. The City of Lino Lakes has elected to follow GASB pronouncements exclusively after that date. The City reports deferred revenue on its combined balance sheet. Deferred revenues arise when a potential revenue does not meet both the "measurable" and "available" criteria for recognition in the current period. Deferred revenues also arise when resources are received by the government before it has a legal claim to them, as when grant monies are received prior to the incurrence of qualifying expenditures. In subsequent periods, when both revenue recognition criteria are met, or when the government has a legal claim to the resources, the liability for deferred revenue is removed from the combined balance sheet and revenue is recognized. The City has reported as deferred revenues the amount of $2,557,656, which consists of the following: Property taxes receivable $25,007 Special assessments receivable 2,532,649 Total $2,557,656 D. BUDGETS Budgets are adopted on a basis consistent with generally accepted accounting principles. Annual appropriated budgets are adopted for the General Fund. Budgeted amounts are reported as originally adopted, or as amended by the City Council. Individual amendments were not material in relation to the original appropriations which were adjusted. Budgeted expenditure appropriations lapse at year end. Encumbrance accounting, under which purchase orders, contracts, and other commitments for the expenditure of monies are recorded in order to reserve that portion of the appropriation, is not employed by the City because it is at present not considered necessary to assure effective budgetary control or to facilitate effective cash management. 29